Iberdrola is one of the world’s top utilities and a leading renewable energy producer (see Fig. 1). It was the first fully private European utility, and is one of the main electricity companies and the largest renewable energy generator in the UK. The company produces and provides clean and reliable energy to over 100 million people in the world, mostly in the UK, US, Mexico, Brazil and Spain, stimulating economic and social development.
Recognised as one of the most ethical companies in the world by the Ethisphere Institute, Iberdrola is the only European electrical utility to have been included in all 15 editions of the Dow Jones Sustainability Index and, in 2010, it became the first global utility with nuclear assets to be included in the FTSE4Good index. The company also invests around €160m per year into innovation, for which it has been recognised by the European Commission, through its R&D scoreboard, as one of the most innovative companies in Europe.
Last year, Iberdrola opened West of Duddon Sands, the group’s first offshore wind farm. The 389MW facility is the first to be commissioned by the energy company and will generate enough electricity to meet the annual demands of 280,000 British homes. The offshore wind farm, which is located approximately 20km off the Barrow-in-Furness coastline in northwest England, covers a total area of 67sq km, and is the result of a €2bn investment in a joint venture with Dong Energy.
The overall energy market is going through many changes. World Finance got the opportunity to speak with the Chairman and CEO of Iberdrola, Ignacio Galán, to discuss how having a greater proportion of women and international members on the board has helped the company be better equipped for meeting the challenges it faces, as well as the steps being taken this year in order to build upon the success the company has had in the renewable energy market.
One of the main concerns raised in any analysis of a listed company’s management structure is its level of decentralisation – the controls on and counterbalances against the exercise of power, mean appropriate differentiation between day-to-day administration and effective management functions on the one hand, and supervision and strategic coordination functions on the other.
As a listed company, the board of directors at Iberdrola is responsible for formulating policies and strategies, the basic management guidelines, and for general supervision and decision-making on matters of strategic significance. Day-to-day business and activity management is done entirely by the head business companies of the different countries where the group operates.
The chairman and CEO, along with the rest of the senior management team, are responsible for the organisation and strategic coordination of the group, through the dissemination, implementation, and monitoring of the overall strategy and basic guidelines. The 14-member board, which today includes 11 independent directors that have held office for less than 12 years, has three consultative committees made up exclusively of independent directors.
Country sub-holding companies centralise the provision of services common to such companies. They implement organisation and strategic coordination and have boards of directors that include independent directors and their own audit committees, internal audit areas, and compliance units or divisions.
Executive Directors of Iberdrola (the listed company) do not participate in management decision. This structure operates jointly with the group’s business model, which allows for an overall integration of the businesses (through networks, liberalised, and renewables) and focuses on maximising the operational efficiency of the various business units through the exchange of best practices among the companies involved.
Head business companies are in charge of the day-to-day administration and effective management of each business. They also have boards of directors, which include independent directors, specific management teams and audit committees.
“We have a business model based on a long-term vision, ethics and transparency, the integration of people and cultures and sharing the economic benefits we generate with all our stakeholders”, says Galán. “We are firmly committed to our customers, offering them the service they require; to our suppliers, involving them in our responsible and ethical practices; and to our shareholders, by creating sustainable value for the people, most of them pensioners, who have given us their confidence and trust.”
With over 100 years of experience and a workforce of over 30,000 people focused mainly on Spain, the US, UK, Mexico and Brazil, Iberdrola has generated value, achieved profits, and maintained a strong shareholder remuneration for more than a century. Given the international and diversified shareholding profile of Iberdrola, the company takes the highest standards recognised in international markets as a reference.
Operating global governance
Good governance requires a constant effort to communicate corporate policies to all stakeholders, not just investors. “Our company is a benchmark in this area because of its commitment to best practices and ethical business principles in all areas of its activity.
“With a diversified shareholder base which includes institutional funds and more than 600,000 retail shareholders throughout the world – as well as several millions more who invest through pension and investment funds – we’re focused on meeting their needs and protecting their interests”, says Galán.
Iberdrola believes that corporate sustainability and responsibility should be embedded in every aspect of the company’s life. Therefore, it has a three-pronged approach to the challenge of corporate governance – continuous improvement in internal rules and practices, direct engagement with shareholders and maximum transparency in information communicated to the market. Putting the shareholder at the heart of business is at the forefront of the company’s commitment to transparency and best practices, and the reason behind the implementation of its corporate governance system.
Designed to serve its shareholders, the system is made up of by-laws, with corporate policies reflecting the principles and standards governing its activities, and other internal codes and procedures for rules and regulations. Providing disclosure, transparency and participation through open and easy access to full details on the company – especially through its online presence – has been lauded by the international financial community.
Investors and shareholders can easily find guidance on the corporate governance system at the company’s website in the form of an eBook that can be downloaded and read through devices including e-readers, tablets and smartphones, with updates notified via social media.
A shareholders and investor section on the website offers comprehensive and regularly updated information on Iberdrola’s strategy and governance model, including the On-Line Shareholders system (OLS).
This is where shareholders can ask questions and obtain a response within 48 hours, observe other shareholders’ questions and answers, and communicate with each other. Galán continues: “Iberdrola is strongly focused on a continuous relationship with its shareholders, particularly with minority shareholders, and its OLS system is designed to meet the legal and personal requirements of all our investors.”
Promoting shareholder equality
The trail-blazing approach to engaging with shareholders and investors at the international level includes the introduction of holding regular corporate governance road shows for shareholders, investors, proxy advisors, and analysts. “We are an independent company not controlled by any particular shareholder and we want to be close to all our shareholders and offer them the opportunity to ask anything at any time”, says Galán.
The company’s efforts demonstrate that rather than avoid meetings it welcomes continuous contact with its shareholders. In all those meetings, Iberdrola listens to suggestions and initiatives made by shareholders, and puts them into practice. To this effect, it has installed the General Shareholders’ Meeting as its main decision-making body. The company encourages shareholder participation and tries to increase attendance year after year (see Fig. 2).
“There’s a proactive attitude to strengthen a female representation on the company’s board. Five of its 14 members are women – Inés Macho, Samantha Barber, Helena Antolín, Georgina Kessel and Denise Mary Holt, the latter being appointed in May 2014. This brings the proportion of women serving on the board of directors to 36 percent. Iberdrola has become the company with the highest percentage of women on its board among the largest Ibex-35 blue chip index companies, and among the top at an international level”, says Galán.
The number of members from the five different geographical areas where the company has its core operations has increased, reinforcing the international character of the board and enhancing the knowledge of its businesses. Its international nature is a reflection of the company’s current situation following recent expansion, which has enabled it to become a multinational company with a presence in many countries.
This is the result of promoting diversity across the board’s composition to enrich decision-making processes while recognising the need for plural points of view when debating board matters. Corporate board diversity, mostly in the form of gender and professional profile diversity, has come under considerable focus over the past decade. Iberdrola is an example of international diversity, with members born in US, UK, Mexico, France and Spain; one of these members is the lead independent director.
The lead independent director is Inés Macho, who addresses a number of core responsibilities. Inés Macho chairs the appointments and remunerations committee and Samantha Barber chairs the CSR committee. A more diverse boardroom and a holistic approach to corporate governance have brought ethics, social responsibility and transparency to the forefront of the company’s decision making.
“In Iberdrola we are convinced that the business world must do things differently and that a new capitalism is needed, based on values like honesty, effort and responsibility. For us, results cannot be achieved at any price because the end never justifies the means”, continues Galán. “Corporate governance is and must be a sophisticated and dynamic discipline where everything revolves around the creation of an ethical culture. We should never forget that the crisis we have been enduring was largely caused by a decline in moral principles and short-sighted approaches that put immediate success ahead of results that would be sustainable in the long term.
“Ethics should be prominent in every aspect of society – the economy, politics, finances, and above all in people. Values such as honesty, loyalty, work and respect must be taught from the earliest ages, and guide people throughout their personal and professional lives. There needs to be a transformation of our society towards a more sustainable, inclusive and responsible model, in which people and ethical values lie at the heart of decisions and ethics become an essential part of the business model and corporate culture.”
In 2012 Iberdrola’s board of directors approved a partial reform of the corporate governance system in order to enhance the group’s compliance structure, as part of its interest in continuing to make progress in the implementation of the best good governance practices. The modification of the corporate governance system set up a new compliance unit.
This is a permanent internal body linked to the CSR committee. The current regulations confer wide powers on this unit in relation to the code of ethics, and the crime prevention and anti-fraud policy. Iberdrola continues to work towards its objective of continually updating the improvement of its practices and internal regulations, as well as applying a maximum transparency in the information it provides to the markets.
The company has built a strong position as the largest global onshore wind investor and operator. At the end of 2013, Iberdrola had operating installed capacity above 14,247 MW – 53 percent outside Spain – producing a total of 33,899 million kWh of power in the year. It has a solid and focused renewables business and efficient operating assets (see Fig. 3), with a deep knowledge of growth and development in the market for both the on and offshore sectors in technology, supply chain and regulation. It has now rationalised its project pipeline and concentrates development efforts on strategic markets.
Last year saw the West of Duddon Sands offshore wind farm commission. It has been one of the most efficient offshore projects completed to date in the UK. This is the first project to use next generation facilities, vessels and construction techniques, which will be adopted by the next round of proposed larger projects. The 389MW wind farm is one of the largest offshore wind farms in UK waters, with 108 turbines stretching over 67sq km. Total investment was €2bn, and the project will supply a power equivalent to the average annual demand of 280,000 homes.
The project used a new offshore wind terminal at Belfast Harbour – the first purpose-built offshore wind installation and pre-assembly harbour in the UK. The size of the terminal at Belfast allowed the project to use two of the world’s most advanced installation vessels. Working in tandem, the vessels installed the foundations and the turbine components in record time. The size and scale of the purpose-built vessels has driven efficiencies in the installation process.
“West of Duddon Sands has demonstrated that bigger projects using bespoke technology and processes will encourage the offshore supply chain to industrialise and deliver efficiencies and cost savings. We now intend to build on the company’s on and offshore experience to improve the effectiveness and efficiency of offshore wind industry and reduce the cost of energy. Larger projects will stimulate growth of a larger scale supply chain with lower costs of production, and will bring more investment in faster technological change”, says Galán.
“Iberdrola is at the service of the communities where we are present. Investing around €11.2bn in our current three year plan; with a total tax contribution of almost €5.4bn annually; employing more than 30,000 people and taking on over 1,000 young trainees and apprentices per year, many of whom join the company afterwards.”
Attesting the longevity of the company, Galán explains how career options are offered to many looking to get into the field. “We also provide hundreds of scholarships at international universities to young graduates each year.
We promote the personal and professional development of our employees, with more than one million annual hours of training, which represents around three percent of their working time; and we make purchases of €5bn per year, which generate thousands of additional jobs among our suppliers.” Galán emphasises that it is vital for energy companies to operate in a sustainable, ethical way at a time when around €1.9trn of new investment in energy infrastructure will be needed in Europe alone over the next 20 years – most of it aimed at reducing carbon emissions.